By Ali Dadpay for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.
Iran’s enduring housing recession has cost many Iranians their dream of homeownership while depleting their purchasing power due to higher rent. The housing sector is unlikely to return anytime soon to the days when it was Iran’s best investment option.
The “Iranian dream” is the same around the world. Iranian families work hard to own a place they can call home, whether it’s a small apartment in Tehran or a house built of mud and stone in a village. Until recent years, the demand for housing was amplified by a volatile economy in which real estate presented the safest option for investment. This made housing one of the most prosperous sectors of the national economy.
In 2012, Iran’s housing sector accounted for 20% of the gross domestic product (GDP), with investment in housing reaching 8% of the GDP. This was interpreted as a sign of sustainable growth in housing. For most of the 1990s and 2000s, investment in housing as a share of the GDP oscillated around 5%.
As oil prices began to rise in the early 2000s, the housing sector significantly expanded. Boosted by oil revenue, housing construction intensified — particularly in Tehran. Few believed that the sector’s growth would slow, as it appeared that demand would never be satisfied. The ensuing economic crisis — caused by declining oil prices and international sanctions over the country’s nuclear program — changed that. Things took a turn for the worse as rising inflation swallowed purchasing power.
The housing sector is a classic example of overinvestment in construction. Soon, supply had overtaken demand, with the latter particularly weakened by increasing inflation. In 2011, the number of construction permits issued began to drop. The fall was modest in the beginning, with a 2.4% decline in 2012 compared to 2011.
However, in 2014, the number of construction permits issued dropped by 32.1% compared to 2013. After the oil boom, it was time for a real estate bust. As home prices plummeted, the number of transactions also dropped, with many homeowners refusing to sell at deflated prices.